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IMF cuts US economic growth forecast to 1.7%

The International Monetary Fund said it expects the US economy to grow even more slowly this year than it predicted a month ago due to weakness in the first quarter.

The IMF said the world's largest economy should grow 1.7% in 2014, below its June prediction of 2% growth.

US GDP contracted at a 2.9% annual pace in the first quarter, dragged down by a weak housing market, a slower pace of restocking by businesses and lower exports. It was the sharpest decline in five years.

The IMF said US activity should pick up to a rate of 3% to 3.5% for the rest of the year, and stay at 3% next year and in 2016.

"Still, the drag on growth from the first quarter contraction will not be offset," IMF staff said in their yearly analysis of the US economy.

The lower expectations for growth should contribute to continued slack in the labour market for the next three to four years, with the United States remaining below full employment until 2018, it added.

As long as inflation and financial stability concerns remain subdued, the IMF said the US Federal Reserve could keep its benchmark interest rates at zero beyond the middle of 2015.

The IMF said views among policymakers at the US central bank appeared centered around mid-2015 for a rate hike.

The IMF also warned that as the US population ages, the economy would not be able to grow above 2% in the longer-term without significant reforms, including tax and immigration changes, more investment in infrastructure and job training, and the provision of childcare assistance.

For the first time in several years, it also focused on poverty within the United States, which afflicts a quarter of American children. It urged the United States to expand the earned income tax credit to all poorer workers and boost the minimum wage, which together should help poor people without a huge dent to the government's budget.